In a recent development, the Income Tax department has addressed former BharatPe CEO Ashneer Grover concerns regarding notices issued to startups.
These notices require startups to submit documents related to the three-year Income Tax Return (ITR) details of their investors and shareholders. This article will delve into the IT department's response and its implications.
Key Highlights:
The Income Tax department clarifies its stance on Section 68 of the Income-tax Act, 1961.
The Finance Act, 2012 mandates transparency in the source of share capital.
The department explains its rationale for examining the genuineness of transactions.
Ashneer Grover expresses concerns over the notices and questions their necessity.
Startups are urged to provide documentary evidence of shareholders identity and ITR details.
The IT Department's Response
In response to Ashneer Grover queries and concerns, the Income Tax department took to social media platform X (formerly Twitter) to provide clarity on the matter.
They stated, "Dear @Ashneer_Grover, Section 68 of the Income-tax Act, 1961 (the Act) under which the Assessing Officer (AO) has made the inquiry about creditworthiness of the shareholder/investor, places the initial onus on the assessee-company to prove the following: Identity of the investor, Creditworthiness of the investor, and Genuineness of the transaction."
Transparency in Share Capital
The Finance Act of 2012 introduced regulations pertaining to the nature and source of sums credited as share capital and share premium in the books of closely held companies, excluding Venture Capital Funds or Companies registered with SEBI.
According to the Act, these sums can only be treated as explained under section 68 if the source of funds from a resident shareholder is also adequately explained by the investor.
"In the present case, it appears that the AO has sought to examine the genuineness of the transaction and the source of investment by the shareholder-investor to verify if the amount invested is commensurate with the income shown in the ITRs of the investors" the IT department explained.
Verification of ITR
The IT department also pointed out an alternative course of action. If the Permanent Account Numbers (PAN) of the investors are shared with the AO by the company, he can verify the ITRs of the investors.
This practice has been corroborated in various tweets in the thread.In the last 1 month, a number of startups (a few in my portfolio as well) have received Income Tax notices asking to furnish information about shareholders.
— Ashneer Grover (@Ashneer_Grover) September 8, 2023
Bahut interesting hai - they are asking start-up companies to furnish 3 year ITR of all shareholders. 1) How and why will… pic.twitter.com/f48593uE4T
Ashneer Grover's Concerns
Ashneer Grover, a former Shark Tank India judge, expressed his concerns over the Income Tax Department's notices. He highlighted that several startups, including some in his portfolio, have received these notices, requesting information about shareholders.
Grover specifically pointed to the portion of the ITR notice that asks startups to provide three years' worth of ITR for all shareholders. He also shared a copy of the IT department's notice, which requested certain documents under section 142 (1) of the Income-tax Act.
"In the last month, a number of startups, including a few in my portfolio, have received Income Tax notices asking to furnish information about shareholders" he stated in a tweet.
The Call for Transparency
Grover questioned the need for companies to possess shareholders ITR details and why shareholders should share this information with startups.
He called upon Finance Minister Nirmala Sitharaman to investigate the matter and provide clarity.
In conclusion, the Income Tax department has responded to Ashneer Grover concerns regarding the notices sent to startups.
The department emphasizes the importance of transparency and compliance with the Income-tax Act, 1961, while Grover seeks further clarification and urges the government to address the situation.
This article aims to provide insights into the ongoing dialogue between startups and the Income Tax department, shedding light on the complexities of compliance and transparency in the Indian business landscape.
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